We’re living and working in an increasingly digital world, where the lines between contractors and employees have become even more blurred. We’re working from home and commuting less, meeting virtually more and face-to-face less. As businesses restructure and adapt to changing demands, they may find that their need for in-house full-time staff no longer exists, so they’ll look to other employment options like bringing on contractors and freelancers on a project-to-project basis.
From a high-level, most business owners will understand the fundamental difference between a contractor and an employee. Employees work within the business, receive superannuation, holiday leave, sick leave and other entitlements. A contractor trades as their own business; they pay their own super and tax and won’t receive the standard entitlement packages unless under the discretion of their client. Because more people are working for themselves these days, the question of whether to hire permanent staff or employ on a contract basis can become even more complicated.
There are many differences between employees vs. contractors that aren’t commonly known. Understanding what they are will give you the right tools to employ and engage workers correctly.
The fundamental difference between a contractor and an employee:
Subcontracting and delegating
An employee can’t subcontract or pay someone else to complete their assigned tasks, where a contractor can.
Payment
An employee will be paid for either amount of time worked, a price per unit or item or a commission. A contractor is paid for completed projects based on the quote provided or hours worked.
Tools and resources
An employee will be provided with the tools and resources required to get the job done, such as software and electronics. Or a business will reimburse the employee for expenses.
A contractor will purchase all of the equipment and tools they need to complete the required projects without receiving reimbursements or allowances for such tools from clients.
Risk ownership
An employee doesn’t wear the commercial risk associated with the business as the business is legally responsible for carrying out business compliantly, and according to the law. A contractor will take on all business-related risks and are legally accountable for their work.
Control over work
An employee typically has little or no say about what they work on or how they work on it. A contractor can choose to reject or take on projects based on their interests. They will, however, run the risk of losing a contract if they do not choose to perform the clients’ desired tasks.
Position within the business
A permanent employee doesn’t operate as a separate entity but are considered part of the business. A contractor acts as an extension of the company, working independently and as a separate entity to the central in-house teams.
What are the risks of not employing in New Zealand correctly?
As a business owner, you might not understand that classifying your workers correctly in New Zealand can have undesirable consequences.
One common mistake businesses make is identifying a full-time worker as a contractor, even though they’re treated as full-time workers in all respects. Often a business might classify a worker as a contractor to avoid having to pay entitlements and adhere to termination notice periods. If this is the case, then the Employment Relations Authority doesn’t support unlawful contracts, which means business owners will be up for paying employee entitlements for the length of the contract, potentially years after they’re contract has ceased.
Employees vs. contractors | Do you wish to employ in New Zealand but aren’t sure if you must employ permanent workers or contractors?
ANZPEO is the only professional employment organisation that services New Zealand only. We’ll employ workers and manage contractors on your behalf in keeping with New Zealand employment law. Speak to us today to find out how we can help your business reach new heights in New Zealand.
